Bondpro Corporation v. Siemens Power Genera

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-3077
BONDPRO CORPORATION,
Plaintiff-Appellant,
v.
SIEMENS POWER GENERATION, INC.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 04 C 0026 C—Barbara B. Crabb, Chief Judge.
____________
ARGUED MAY 11, 2006—DECIDED SEPTEMBER 12, 2006
____________
Before POSNER, EASTERBROOK, and WOOD, Circuit Judges.
POSNER, Circuit Judge. The plaintiff in this diversity suit
for theft of a trade secret won a verdict on liability from
the jury; but before the jury proceeded to the second stage
of a bifurcated trial—that of determining what damages,
if any, the plaintiff had suffered—the district judge
granted judgment for the defendant as a matter of law.
Wisconsin law—but as adopted in Wisconsin, the Uniform
Trade Secrets Act is to “be applied and construed to make
uniform the law relating to misappropriation of trade
secrets among states enacting substantially identical laws.”
2 No. 05-3077
Wis. Stat. § 134.90(7). And so “decisions by other jurisdic-
tions [than Wisconsin] on questions involving the UTSA are
to be given careful consideration.” Minuteman, Inc. v.
Alexander, 434 N.W.2d 773, 779-80 (Wis. 1989).
We begin with some jurisdictional issues. Our Circuit Rule
28(a)(1) requires that the jurisdictional statement in a
diversity suit name the states of which the parties are
citizens. In violation of this rule, the jurisdictional statement
in the plaintiff’s brief fails to indicate the citizenship of the
parties (both of which are corporations); it says only that
they are “citizens of different states.” The defendant’s brief,
compounding the violation, states that the plaintiff’s
jurisdictional statement is complete and correct. So we
ordered the parties to supplement their jurisdic-
tional statements, and the responses indicate that the parties
are indeed citizens of different states and thus that the
district court had diversity jurisdiction, for the case
was removed to the district court by the out-of-state party
and the amount-in-controversy requirement is satisfied. But
the defendant’s response added: “it appears that BondPro
is not a corporation in ‘good standing’ with the State of
Wisconsin, as its status of April 1, 2004, is listed as delin-
quent.” Inquiry of the plaintiff’s counsel at oral argument
revealed that he didn’t know his client’s current status
under Wisconsin law or whether that law authorizes a
delinquent Wisconsin corporation to bring a suit in a
Wisconsin state court. Apparently it does. The only conse-
quence of delinquency is that the Wisconsin Department of
Financial Institutions can bring an administrative proceed-
ing to dissolve the corporation, Wis. Stat. § 180.1420, and
this was not done. And shortly after the oral argument
BondPro was restored to good standing.
Anyway, until a corporation’s charter is revoked, it
remains a corporate citizen of the state of incorporation, and
No. 05-3077 3
no more is necessary to allow it to maintain a suit in a
federal court, Smith v. Arundel Cooperative, Inc., 660 F. Supp.
912, 913 (D.D.C. 1987); 15 Moore’s Federal Practice § 102.56[9],
p. 102-132.5 (3d ed. 2005)—at least as a matter of federal
jurisdiction; for it is always open to a defendant to show
that the plaintiff in a diversity suit lacks capacity, under the
law of the plaintiff’s state, to bring a suit. Fed. R. Civ. P.
9(a). Any such defense was waived here, however, because
while noting BondPro’s delinquency the defendant makes
no argument for dismissal based on it. Since a corporation’s
authority to sue in its state courts is not a jurisdictional
prerequisite to removal on grounds of diversity, Maryland
People’s Counsel v. FERC, 760 F.2d 318, 319 (D.C. Cir. 1985)
Summers v. Interstate Tractor & Equipment Co., 466 F.2d 42,
49-50 (9th Cir. 1972) Zelinger v. Uvalde Rock Asphalt Co., 316
F.2d 47, 53 (10th Cir. 1963); see also Fed. R. Civ. P. 9(a);
Wagner Furniture Interiors, Inc. v. Kemner’s Georgetown
Manner, Inc., 929 F.2d 343, 345-46 (7th Cir. 1991); MTO
Maritime Transport Over-Seas, Inc. v. McLendon Forwarding
Co., 837 F.2d 215, 218 (5th Cir. 1988), the waiver eliminates
the issue from our consideration.
We add that even if the plaintiff had dissolved since the
removal of the case to the district court, this would not
affect jurisdiction, United States Liability Ins. Co. v. Fassbinder
United Builders, Inc., No. 99 C 50330, 2003 U.S. Dist. LEXIS
1991, at *2 (N.D. Ill. Feb. 12, 2003); see Wild v. Subscription
Plus, Inc., 292 F.3d 526, 528 (7th Cir. 2002), unless its dissolu-
tion signified that there was no longer an adversary pro-
ceeding. But there might be; the dissolved corporation
might have a successor that could be substituted for it and
the suit continue. With immaterial exceptions, jurisdiction
depends on the facts that exist when the suit is filed, e.g.,
Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570
(2004)—which means, by the way, that if BondPro had been
4 No. 05-3077
dissolved before suing and the dissolution had eliminated
any interest it had in the suit, resurrection of the corporation
after the suit was filed would not have conferred jurisdic-
tion. Wild v. Subscription Plus, Inc., supra, 292 F.3d at 528.
A further sign of the lawyers’ carelessness is that their
briefs are miscaptioned. The name of the defendant is given
as “Siemens Westinghouse Power Corporation,” which was
changed before the appeal was filed. One might have
expected the defendant’s lawyer, at least, to know the name
of his client. The lawyers’ insouciance about jurisdiction,
however, goes beyond carelessness, and we hereby direct
counsel for both parties to show cause within ten days from
the date of this decision why they should not be sanctioned
for violating our circuit rule.
There is still another jurisdictional issue. It is whether
BondPro has anything tangible to gain from reinstating
the jury’s verdict, for if not there is no case or contro-
versy within the meaning of Article III of the Constitution.
But to explain the issue will require a summary of the facts.
BondPro is a small company that manufactures products
(it is still in business despite its scrape with the Wisconsin
corporate authorities) that require the bonding of dissimilar
materials. Siemens (a subsidiary of the German conglomer-
ate), the defendant, makes electrical generators. The genera-
tors produce electrical power by spinning rotors over
magnets. The rotors have slots into which copper coils are
wedged. The outer layer of each coil consists of insulation
material in the form of a U-shaped “slot cell.” Siemens
manufactures slot cells by first placing the insulation
material in a U-shaped (“female”) container and then
pressing a “male” mold on top and applying heat. This
process compresses the insulation into a rigid U-shaped
material that can slide into the slots. The process resembles
No. 05-3077 5
putting material into a bowl and pressing another, slightly
smaller bowl into the first bowl to compress and harden the
material inside that bowl.
The disadvantage of the process is that the slot cell may
emerge with wrinkles in the insulation material that are
difficult to smooth out. BondPro developed (though it
has never marketed) a process that dispenses with the
female mold. Instead the insulating material is placed on the
outside of the male mold and pressed against it by placing
the mold and the insulation material in a vacuum bag so
that air pressure compresses the material against the mold.
Any remaining wrinkles are smoothed by hand. The
ensemble consisting of the mold and the insulation material
pressed against it is then placed in an autoclave, a container
in which high levels of heat and air pressure are applied to
the contents. The heat and pressure compress the insulation
coating the mold into the desired rigid shape and it is then
removed from the male mold and slid into a rotor’s slot.
In 2001, Scott Wang, BondPro’s principal, explained and
later demonstrated the process to Mark Miller, a materials
engineer employed by Siemens. Though there were
some negotiations, they resulted only in agreement (as we
shall see) on confidentiality; Siemens didn’t seek a license
from BondPro to use the process, even though BondPro had
made clear in the course of the negotiations that it believed
it had proprietary rights to it. Instead Miller filed a patent
application on behalf of Siemens for a process similar to
BondPro’s (more precisely, similar to the description of
BondPro’s process in its appeal briefs) although among
other differences it does not specify the use of an autoclave
for the final step of hardening the insulation materials
coating the male mold. There are other ways of applying
heat and pressure; no particular way is specified in the
patent application.
6 No. 05-3077
The Patent Office rejected Siemens’ application and
Siemens has never used the process. Nor for that matter has
BondPro, except to make some prototypes to show Siemens.
There may have been some use of BondPro’s process by
other companies, but if so there is no evidence of the value
of such use.
Anybody other than Siemens can use the BondPro process
without liability because, as BondPro acknowledges and
indeed asserts, the process was disclosed to the world in
Siemens’s patent application. A trade secret that becomes
public knowledge is no longer a trade secret. Ruckelshaus v.
Monsanto Co., 467 U.S. 986, 1002 (1984); CVD, Inc. v.
Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985); see ECT Int’l,
Inc. v. Zwerlein, 597 N.W.2d 479, 482 (Wis. App. 1999). The
mere fact of mention in a public document is
not controlling; no one may have noticed the document. See
Hoechst Diafoil Co. v. Nan Ya Plastic Co., 174 F.3d 411, 418
(4th Cir. 1999); Gates Rubber Co. v. Bando Chemical Industries,
Ltd., 9 F.3d 823, 849 (10th Cir. 1993). Publication in a patent
destroys the trade secret, On-Line Technologies, Inc. v.
Bodenseewerk Perkin-Elmer GMBH, 386 F.3d 1133, 1141 (Fed.
Cir. 2004); Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 99
(6th Cir. 1975), because patents are intended to be widely
disclosed—that is the quid for the quo of the patentee’s
exclusive right to make and sell the patented device. But
patent applications are not patents, and they used to be
secret. However, now they have to be published after 18
months, 35 U.S.C. § 122(b)(i); 1-1 Roger M. Milgrim, Milgrim
on Trade Secrets § 1.06 n. 22 (2006), the aim of this rule being
to disseminate the knowledge revealed in the application to
the inventor community so that other inventors can build
upon it. Published patent applications are in fact studied by
inventors in the relevant field, and so a secret disclosed in
them will ordinarily (we need not decide whether invari-
No. 05-3077 7
ably) lose its status as a trade secret. Vital State Canada, Ltd.
v. Dreampak, LLC, 303 F. Supp. 2d 516, 525 (D.N.J. 2003). Of
course a patent application that is rejected, as Siemens’ was,
is less likely to contain information that other inventors
would want to use, but it might, since patent examiners are
not infallible and a patent application might disclose some
novel features or bring to light some forgotten prior art.
But had it not been for the alleged theft of BondPro’s
secret by Siemens, there would have been no patent applica-
tion. So while someone who learned about BondPro’s
process from the application or some other source traceable
to Siemens would have no liability for using the process
without BondPro’s consent, Underwater Storage, Inc. v.
United States Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966);
DVD Copy Control Ass’n, Inc. v Bunner, 75 P.3d 1, 27-28 (Cal.
2003) (concurring opinion), Siemens would be liable to
BondPro for the consequences of enabling the innocent
copying by revealing BondPro’s trade secret to the world.
Syntex Opthalmics, Inc. v. Tsuetaki, 701 F.2d 677, 683 (7th Cir.
1983); Shellmar Products Co. v. Allen-Qualley Co., 87 F.2d 104,
109-10 (7th Cir. 1936); Underwater Storage, Inc. v. United
States Rubber Co., supra, 371 F.2d at 955; DVD Copy Control
Ass’n, Inc. v Bunner, supra, 75 P.3d at 27-28 (concurring
opinion); Daniel W. Park, “Trade Secrets, the First Amend-
ment, and Patent Law: A Collision on the Information
Superhighway, 10 Stan. J.L. Bus. & Fin. 46, 56-57 (2004). To
disclose a trade secret without authorization is unlawful,
Wis. Stat. § 134.90(2)(b); Hicklin Engineering, L.C. v. Bartell,
439 F.3d 346, 349 (7th Cir. 2006); Learning Curve Toys, Inc. v.
PlayWood Toys, Inc., 342 F.3d 714, 726 (7th Cir. 2003), and the
wrongdoer is liable for the consequences.
But there is no evidence of the value of any use that others
may have made of BondPro’s process who may have
8 No. 05-3077
learned of it directly or indirectly from Siemens. When to
this absence of evidence is added the fact that neither
BondPro nor Siemens has used the process commercially
despite the investment that both companies made in its
development (such as BondPro’s construction of prototype
slot cells for Siemens and Siemens’ filing of a patent applica-
tion), that Siemens apparently did not use the process
because it decided it cost more than the conventional
process that it was using to manufacture slot cells, and that
the patent application describing a similar process was
rejected, the inference is compelling that the process neither
had when disclosed to the public, nor has, measurable
commercial value.
Even a trade secret that had never been used at all could
have a market value, enabling damages from the destruc-
tion of the secret to be estimated. DSC Communications Corp.
v. Next Level Communications, 107 F.3d 322, 329-30 (5th Cir.
1997); Metallurgical Industries, Inc. v. Fourtek, Inc., 790 F.2d
1195, 1208 (5th Cir. 1986); Precision Plating & Metal Finishing,
Inc. v. Martin-Marietta Corp., 435 F.2d 1262, 1263-64 (5th Cir.
1970). Otherwise trade secrets could not be licensed before
they were used. But apart from a palpably inadequate
expert’s report rightly rejected by the district judge,
BondPro presented no evidence that would have enabled
the market value of its process to be estimated on any basis
other than wild conjecture. See Pioneer Hi-Bred Int’l v. Holden
Foundation Seeds, Inc., 35 F.3d 1226, 1245 (8th Cir. 1994);
Metallurgical Industries, Inc. v. Fourtek, Inc., supra, 790 F.2d at
1208; Jillian’s Billiard Club v. Belloff Billiards, Inc., 619 N.E.2d
635, 638 (Mass. App. 1993).
Although a damages remedy is thus out of the question,
we do not think the case is (quite) moot. BondPro is seeking
injunctive relief as well as damages, and it would presum-
No. 05-3077 9
ably be entitled to an injunction against Siemens’ using the
process itself, since, if BondPro is right, Siemens learned of
the process only by stealing BondPro’s trade secret, and it
should not be allowed to profit from its wrongful act. Syntex
Opthalmics, Inc. v. Tsuetaki, supra, 701 F.2d at 683; Shellmar
Products Co. v. Allen-Qualley Co., supra 87 F.2d at 109-10.
Siemens says it has no plans to use the process, but conceiv-
ably it might change its mind if its legal jeopardy were
removed.
How long such an injunction should last is a separate
question, though not one we need resolve. Minuteman, Inc.
v. Alexander, supra, 434 N.W.2d at 779, holds that the
injunction “should terminate when a former trade secret
becomes either generally known to good faith competitors
or generally knowable to them because of the lawful
availability of products that can be reverse engineered to
reveal a trade secret,” unless the infringer has benefited
from having used it first; in that event the injunction should
continue until the advantage over competitors conferred by
this wrongfully acquired lead time has dissipated.
Coming at last to the merits, we consider first whether
BondPro’s process was ever a trade secret, and second
whether if so it was improperly disclosed to the world by
Siemens. It was not a secret from Siemens. BondPro dis-
closed it to Siemens in the hope of licensing it. Although it
is awkward to license a trade secret because the negotiation
necessarily reveals the secret to the prospective licensee, that
revelation, as well as the revelation to suppliers and licens-
ees, is obviously not the kind of disclosure that forfeits the
protection of trade-secret law, Rockwell Graphic Systems, Inc.
v. DEV Industries, Inc., 925 F.2d 174, 179 (7th Cir. 1991); Clark
v. Bunker, 453 F.2d 1006, 1010 (9th Cir. 1972), as otherwise
trade secrets could not be licensed.
10 No. 05-3077
What does forfeit protection is a failure to take reasonable
steps to prevent gratuitous disclosure. Wis. Stat.
§ 134.90(1)(c)(2); IDX Systems Corp. v. Epic Systems Corp., 285
F.3d 581, 583 (7th Cir 2002); see also ECT Int’l, Inc. v.
Zwerlein, supra, 597 N.W.2d at 482. Failure to take such steps
is persuasive evidence that the secret has no real value.
Courts are entitled, moreover, to economize on their scarce
resources of time and effort by refusing to help a secret
holder who failed to take minimum steps to protect his
secret before running to court. Rockwell Graphic Systems, Inc.
v. DEV Industries, Inc., supra, 925 F.2d at 179. Failure to take
protective steps also sets a trap, since a company that ferrets
out information that the originator does not think special
enough to be worth incurring any costs to conceal will have
no reason to believe that it is a trade secret. Id.But BondPro did take measures to conceal its process that
a reasonable jury could find sufficient. They included
negotiating confidentiality agreements with employees,
customers, and suppliers (including Siemens, with which it
had two such agreements) and assuring that the process
itself and documents describing it were kept under lock and
key. Id. at 177, 180; Hicklin Engineering, L.C. v. Bartell, supra,439 F.3d at 350; Valco Cincinnati, Inc. v. N & D Machining
Service, Inc., 492 N.E.2d 814, 819 (Ohio 1986). But because a
trade secret is not a property right in anything like the sense
in which copyright law and patent law create property
rights, a would-be “thief” may be able to “steal” your secret
without liability, for example if he copies it by reverse
engineering or stumbles on it innocently (maybe you
mislaid the document that describes it). ConFold Pacific, Inc.
v. Polaris Industries, Inc., 433 F.3d 952, 958-59 (7th Cir. 2006).
In general, it is only when the theft is accomplished by a tort
or a breach of contract that there is liability. So it is critical
to consider whether Siemens violated its contractual
No. 05-3077 11
undertaking not to use or disclose information that BondPro
conveyed to it as part of a negotiation for a possible sale or
license of BondPro’s process.
In the course of a negotiation the parties are sure to
convey all sorts of information to each other that either
has no commercial value or is already known to the receiv-
ing party from some other source. To use or disclose such
information without the permission of the informing party
is not a breach of a confidentiality agreement. Cf. IDX
Systems Corp. v. Epic Systems Corp., supra, 285 F.3d at 586.
Anyway the agreements in this case expressly exclude
information that is generally known, or known to Siemens
before the disclosure to it by BondPro, or was developed by
Siemens independently of the disclosure. BondPro’s Wang
described and demonstrated to Siemens’ Miller the process
and in so doing conveyed information. But how much of it
was information at once previously unknown to Miller,
unlikely to be discovered by him shortly, and commercially
valuable? These questions are intertwined because a
conveyance of information that is already common knowl-
edge has no commercial value. That is why a suit for the
appropriation of a trade secret requires proof that the
information constituting the secret “derives independent
economic value, actual or potential, from not being gener-
ally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value
from its disclosure or use.” Wis. Stat. § 134.90(1)(c)(1); ECT
Int’l Inc. v. Zwerlein, supra, 597 N.W.2d at 482; Hogan
Systems, Inc. v. Cybersource Int’l, Inc., 158 F.3d 319, 325 (5th
Cir. 1998).(“If the plaintiff has allowed his trade secret to fall
into the public domain, he would enjoy a windfall if
permitted to recover damages merely because the defendant
took the secret from him, rather than from the public
domain as it could have done with impunity.” Rockwell
12 No. 05-3077
Graphic Systems, Inc. v. DEV Industries, Inc., supra, 925 F.2d
at 179. The confidentiality agreements essentially just
restated the statutory criteria of a trade secret.
The answers to the questions posed in the preceding
paragraph depend on just what BondPro’s claimed trade
secret is. Is it merely the manufacture of rotor-coil insulation
by applying heat and air pressure to insulation materials
draped as it were around the fittingly named “male mold,”
as BondPro sometimes suggests? This was something Miller
and others in the trade knew already because a company
named Torr Technologies had described this method in
advertising materials that Miller, doubtless along with
others, had been given at a trade convention that he had
attended in 2000. BondPro argues that Siemens should be
estopped to make such an argument because the first claim
in its patent application describes just such a barebones
process, and if it was anticipated by Torr (“prior art”)
Siemens was lying to the Patent Office when it claimed that
the process was novel (a requirement for the grant of a
patent). But if Siemens played fast and loose with the Patent
Office—even if it committed a fraud on the Patent Of-
fice—this was not a violation of BondPro’s rights if, by
virtue of Torr’s anticipation, the process that BondPro now
claims as a trade secret was known to the trade.
So if BondPro really had an invention that was con-
cealed from Siemens, there would have to be more detail
to it than we have thus far indicated; but we cannot find the
detail. In places BondPro hints that the trade secret includes
not just the heat and the air pressure but that these forces
are exerted in an autoclave. Yet in its brief, in listing nine
components that constitute the trade secret (some of them
almost risible, such as “Stacking of Materials on Mold”),
there is no mention of an autoclave, just of “Application of
No. 05-3077 13
Simultaneous Heat and Pressure,” which could be done by
other means, as by combining a convection oven to provide
heat with a shrink-tape process (“shrink tape,” as the term
implies, is a wrapping that squeezes by shrinking) to
provide pressure.
One expects a trade secret to be rich in detail, because a
process described in general terms (squeeze insulation
materials draped on the male mold with heat and air
pressure rather than pressing the male mold into a
female mold containing the materials) will usually be
widely known and thus not worth incurring costs to try to
conceal and so not a trade secret. See IDX Systems Corp. v.
Epic Systems Corp., supra, 285 F.3d at 583-84; Composite
Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1266
(7th Cir. 1992) (per curiam); ECT Int’l, Inc. v. Zwerlein, supra,597 N.W.2d at 482-83; cf. Trandes Corp. v. Guy F. Atkinson
Co., 996 F.2d 655, 661-62 (4th Cir. 1993). In its reply brief
BondPro acknowledges that “many of the elements of the
BondPro slot cell manufacturing process were in the public
domain” but states that “the precise execution of each
element, in conjunction with the precise execution of each
additional element, renders BondPro’s process a secret.” But
BondPro has not told us what those details of execution or
implementation are. For example, in the list of nine compo-
nents the temperature and the duration of the application of
heat are stated as a broad range rather than as specific
numbers—and anyway Wang obtained the range from
Siemens! And a broad range was all that Siemens’s patent
application disclosed—so if BondPro’s trade secret resides
in specifics that have not been disclosed to us, Siemens is
not responsible for their disclosure.
AFFIRMED.
14 No. 05-3077
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-12-06